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 Business News | February 2005 
Mexico's Private Sector Key To Government Housing Goals
 Dow Jones
 Mexico City - Mexico's housing boom shows little sign of slowing, with the growing presence of banks in the mortgage sector and a nascent mortgage-backed securities market providing a shot in the arm to the government- led effort to foment a country of homeowners.
President Vicente Fox has set a goal of boosting the number of mortgages provided in Mexico to 750,000 during his last year in office, 2006, to help meet the country's need for an estimated 4 million to 5 million more homes.
While the goal may have seemed overly ambitious when the plan was launched in early 2001 - when the mortgage market was only producing half that amount as it continued to feel the effects of a crisis that battered the country's financial system in 1995 - it is now viewed as achievable.
About 535,000 mortgages were provided in 2004 in Mexico, and both public and private creditors are projecting big gains this year.
Victor Borras, who heads government-run housing fund Infonavit, told Dow Jones Newswires that his organization plans to grant 435,000 mortgages in 2006, an increase of 42% from 2004.
"We see the goal of 750,000 mortgages as very feasible, and Infonavit is increasing substantially its participation in that goal," said Borras.
Mexico's biggest mortgage lender, which granted 306,000 loans last year, said in December that it would move up its original 2006 target of 375,000 mortgages to 2005, representing a 23% increase.
The government wouldn't be able to achieve its goal without the help of private-sector financing that is finally returning to the mortgage market in force.
Banks all but disappeared from the mortgage business in the wake of the credit blowups of the mid-1990s, and in their place sprang up special purpose financial companies, known by their Spanish acronym as Sofols. Backed by government funding, these lenders have flourished.
But with public funding set to dry up by the end of the decade, Sofols have found banks to be eager partners - or even acquirers.
Banking leader BBVA Bancomer started the wave of consolidation last year by buying the biggest Sofol, Hipotecaria Nacional, and stakes in the next two largest lenders were soon snapped up by Canada's Scotiabank Group (BNS) and Spanish savings bank Caja Madrid (CMD.YY).
And the trend continues, with local financial firm Grupo Financiero Ixe SA ( IXEGF.MX) agreeing last week to acquire the relatively small Fincasa Hipotecaria.
Equipped with a retooled mortgage arm, BBVA Bancomer, a unit of Spain's Banco Bilbao Vizcaya Argentaria (BBV), plans to boost lending by 84% to individuals and 64% to developers this year.
"I believe the entrance of banks provides a very important calming effect by guaranteeing resources for the sector," said Daniel Leal, head of mortgage lending at BBVA Bancomer and mortgage committee coordinator at the Mexican Banks Association. Meanwhile, bank clients are a "natural market" for the mortgage products offered by Sofols, he said.
Leal is also optimistic about the government's goals, and said banks are stepping up their participation in the sector, not just via the Sofols but also in co-financing agreements with Infonavit.
By putting up a portion of the money, banks can tap into the middle-income segment served by Infonavit, while the government agency can focus more on lower-income homebuyers.
Co-financing "increases the potential for the institution's own funds and allows the private sector to enter markets that were until now solely inhabited by Infonavit," added Leal.
The program has gotten off to a slow start, but expectations are for strong growth this year.
Desarrolladora Homex SA (HOMEX.MX), one of Mexico's largest home construction companies, said last week that 145 of the record 7,460 homes it sold in the fourth quarter of 2004 had co-financing arrangements.
However, Homex Chief Executive Gerardo de Nicolas said in a conference call to discuss the company's 2004 earnings that this year "this type of co-financing program could become increasingly important to overall mortgage growth."
Overall, he projected that the company's sales would jump 30% this year to between 27,000 and 28,000 homes.
Still, while co-financing is an important development, involving more private- sector money in the mortgage market, "it's not mature enough at this time," said Jorge Gutierrez, deputy director of equity analysis at Scotia Inverlat in Mexico City.
With banks still focused mostly on upper-income home buyers, the onus remains on government-run programs such as Infonavit and the Federal Mortgage Society to meet the demand, he said. But even they have turned to the private sector for funding, securitizing their mortgages to issue mortgage-backed debt.
Infonavit's Borras said he has a "very ambitious plan" to double mortgage- backed issuance to 4 billion pesos ($1=MXN11.07) this year, and again to MXN8 billion in 2006.
Issuing mortgage-backed securities "isn't fundamental to achieving our goals," said Borras. "But I believe that it can become the most important source of revenue for Infonavit over the next five years."
The development of the mortgage-backed market in Mexico is also boosting the quality of home construction so that the assets will be solid enough to back the debt, said Gutierrez of Scotia Inverlat. That will likely lead to further concentration in the homebuilding sector.
"The government will probably favor more the large homebuilders than the small ones, because they will need to build more houses with better quality to be able to be securitized," he said. "The sector has a lot of potential, but the top five will probably benefit more than other ones."
The housing sector has been among the hottest in a Mexican stock market that has set new record highs on an almost weekly basis over the past six months. Several banks have cut their stock recommendations for homebuilders, citing concerns about overvaluation.
Gutierrez agreed that the sector's performance has been somewhat overheated, but remains "very positive" in his overall housing outlook.
"The expectations are very good, but they probably are a bit discounted at these multiples," he added. |
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